A molecular description of the effect of incorporation of cholesterol (CHOL), 7-dehydrocholesterol (7DHC) and ergosterol (ERGO) on the structure of DPPC or EggPC liposomes is provided. Data obtained from ATR-IR spectroscopy, detergent solubility and zeta potential measurements show that the insertion of the various sterols alters the packing arrangement of the tails and headgroup of the PC lipids and may lead to lipid domain formation. On a molecular basis, the differences in lipid packing architecture are traced to differences between the ring and tail structure of the three sterols and these differences in structure produce different effects in DPPC liposomes in the gel phase and EggPC liposomes in the fluid phase. Specifically, CHOL has a relatively flat and linear structure and among the three sterols, shows the strongest molecular interactions with DPPC and EggPC lipids. An extra double bond in the fused ring of 7DHC hinders a tightly packing arrangement with DPPC lipids and leads to less domain formation than CHOL whereas 7DHC clearly produces more lipid domain formation in EggPC. ERGO produces similar structural changes to 7DHC in the tail and headgroup region of DPPC. Nevertheless, ERGO incorporation into DPPC liposomes produces more domain formation than 7DHC.